Credit Cards

American banks are “tapping the brakes” on credit card issuance, The Financial Times reported Monday, as delinquency rates creep back up:

“Measures of credit quality, while not flashing amber, are unmistakably headed in the wrong direction. Quarterly write-offs of bad credit card debt at US banks peaked at nearly $19bn in the first quarter of 2010 and bottomed under $5bn in 2015, according to the FDIC. Since then they have crept back over $8bn. The rate at which credit card holders are falling delinquent, while still at a low level, has also been creeping up since 2015.”

The risk is not so much impairment of credit card portfolios but the likely drag on retail sales.

Real hourly earnings growth is negative YOY:

Median usual weekly real earings for wage and salary workers. Source: US Bureau of Labor and Statistics; Chart: St Louis Federal Reserve

It is not surprising that retail sales growth has become dependent on revolving credit growth. Here is an update of our favorite retail sales chart, showing a one-for-one correspondence between movements in retail sales and changes in credit card loans outstanding in the US.

The correlation between credit-card growth and retail sales is the highest since 2010:

In 2010, of course, retail sales and credit card balances were both declining, and in 2018 both are rising. The dependency shows how fragile the consumer’s position has become.